Brazilian stocks ended higher, thanks to bargain hunting activity and despite worries amid the start to the U.S. earnings season. The U.S. market tumbled amid investor nervousness ahead of Intel’s earnings report, due out after the close.
Brazil’s benchmark Bovespa Index rose 77.98 points, or 0.32%. Brazilian shares rose somewhat, on bargain hunting following recent sharp declines.
Following concerns over monetary tightening that plagued shares last week, according to analysts, investors continue to await the Central Bank’s January meeting on interest rates, scheduled for next Tuesday and Wednesday.
The bank is expected to raise the benchmark Selic interest rate by an additional 25 or 50 basis points from its current 17.75%.
Trading could be volatile during the remainder of the week, as next Monday marks the expiry of options contracts, with investors likely to focus heavy volume around key strike prices of blue chips.
In economic news, Treasury Secretary Joaquim Levy said President Luiz Inacio Lula da Silva, after cutting spending in his first two years in office, will hold off on further reductions this year due to an economic slowdown.
Levy’s comments reflect a policy shift for Lula’s administration, with Levy noting that the government’s priority is to keep Brazil’s economy growing. He said that Brazil’s economic expansion will slow to 4% this year from 5% in 2004.
Turning to research, a major investment bank lowered its rating on Brazil’s banking sector to “market underweight” from “market weight,” stemming from high valuations.
The bank explained that the revision comes in spite of a reduction in the sovereign risk spread outlook and solid growth estimates, as there is “limited upside potential we see for stock prices based on our fundamental valuation methodology.”
Also, Banco Itaú was cut to “peer perform” from “outperform” amid “a limited upside potential.”
Additionally, Brazilian steel firm Gerdau was active, after an analyst downgraded the steel industry to “underweight” from “market weight,” saying the gains made in 2004 are unlikely to be repeated this year.
Thomson Financial Corporate Group